From my understanding, the piece seems to support shareholder value and capitalism while opposing more "mushy" valuations such as Customer Satisfaction. The Economist simply points out that basing a company's health purely on shareholder value is a mistake. For example, since CEO's tend to have a 3 to 5 year life cycle, the incentive exists for them to take a short-term view of the company. This leads to gambles that may pay off near-term but lower shareholder value in the future. The Economist suggests that the remuneration of CEO's be tied to long-term restricted stocks. This should help CEO's avoid the temptation to take short-term risks in a gamble to increase shareholder value during their limited reign. Additionally, The Economist suggests that having excessive government regulations dehumanizes business so that people do what they are told by law, instead of what's right. This is not a good way to build lasting value for shareholders.

Both suggestions use capital markets to change behavior instead of government intrusion. Taken a step further, it may even be a wonderful solution to the gridlock in Washington. What if our legislators were paid 50% of their salaries in government T-bonds. The value of these bonds would fluctuate naturally based on capital market's confidence in the government. I have a feeling both sides would find a way to make things work in the short term and stop gambling with the entire country's future.

Right, it's all the fault of the unions, not the series of CEOs who left the company worse off, and yet who secured increasing pay for themselves and other top executives.

Even though union power is at an all time low, while the profit/wage ratio is skewed toward profits at an all time high. Yeah, the problem is that the unions weren't willing to take greater cuts, while the top executives continued to take a greater chunk of corporate earnings as the company failed to improve.

It's also ironic to see people acting like unions are less market-oriented than their bosses. What are corporations, again? They are government-created entities that allow capital to be monopolized for the purpose of collectively maximizing returns and negotiating power of individual investors, while reducing their legal liability. What are unions? They do nothing more than put labor on an even level with capital, which otherwise enjoys monopoly pricing power over individual workers.

A simple alternative to unions is to restructure the law like Germany has it, where the privilege of government-granted limited liability means that labor gets to elect 1/3 of the board of directors. This involves no more government intervention than what already exists in corporate law.

On the subject of Shareholder value, it should be remembered that companies sell shares to the public on the basis that the compaies are going to do their very best to produce a return on the share-purchaser's precious savings which are put ito those shares to provide capital to the company.

Apparently the Ecommunist doesn't like this idea of respecting the rights of those poor fools who put their savings into company shares. The Ecommunist seems to wish to define the utility function which companies should optimize, and takes offence at the notion that an investor has a right to ask the company to try to make higher profits.

For a company to take the public's money in exchage for shares, on the shareholder's expectation of seeking the maximum return to those share investments, while not actually intending to seek such returns for shareholders, is something called fraud.

But then again, it could be argued, in view of the steadily declining quality of Economic commentary in this journal of late, that operating it under a title like "The Economist" might also be fraud. In my view, truth in labeling would require this journal to change its moniker to the following: The Ecommunist.

I think it has a nice ring to it. It's nicely "E" as in e-commerce -- quite appropriate to a web-based magazine. And the communist part is well supported by the political and economic values subtended by the writings found in this journal, sadly.

You have not done your homework. This is less and issue of Unions “crashing the system” as runaway CEO’s with Pay unattached to performance. Yes unions can get carried away. But when you have a firm that grants top execs absurd raises during periods of a hard time you can’t point the finger only at unions who it would seem were needed to protect workers if the firms mentality is such that top CEOs can award themselves absurd pay increases before filing for bankruptcy.

BTW the Union relationship with the firm can be mutually beneficial. I think many people are taught to assume that unions mess everything up but we have a lot today from unions that we take for granted.

On the subject of America unions, there was a time in America when unions were a much-needed antidote to companies who could hold their employees as effective captives (i.e., slaves) such as in coal-mining towns or other towns from which it might be economically impossible for workers to escape the economic hold on them of a company.

Today in America, any person can fly across the country for a few hundred dollars, and can move from city to city in search of work for considerably less than that. There is unlimited geographic and inter-job mobility for workers who wish to leave one job and pursue another.

Thus, contemporary American unions, and their many extortive practices for taking more money than a free-market exchange would give in an arms-length transaction, and taking that money in exchange for far less work than should be given in such a free exchange, is none other than blackmail. Not surprisingly, organized crime has a long history of close association with unions in America. That is, professional criminals have become intertwined with unions to presumably help them to improve the quality of the criminal extortion practices they apply to companies.

When competing companies get together to fix price, or lower quality, or agree to cut product features to save them all money, this is unlawful collusion which is severely punished in America. But when competitors called employees do this under the auspices of a "union" it is blessed by America's horribly obsolete, anti-competitive, and industry disadvantaging laws which permit unions.

One thing America could do to increase its competitiveness and attract more investment capital, and create vastly more jobs, is to make unions illegal. America's failure to do so is why its steel industry lost virtually all of its market share to competitors, and how its auto industry fostered the soaring success of Toyota and other foreign competitors.

The loss of 18,000 "union" jobs at the Hostess company should be a wake-up call for all. Unions are obsolete, and those running them are thuggish fools at best, and organized criminals at worst.

I stand corrected with respect to the more detailed comments of Mr. Adrian Wooldridge -- wasn't able to hear the full track initially, and I wrongly reacted to the intro comments as being indicative of the what was to follow, which in fact it was not.

Thus Mr. Wooldridge may distinguish himself as one of the few "Ecapitalist" voices rising against a backdrop of Ecommunist cachophony.

As for his comments, he is arguing that short-term shareholder value fixation is a hazard, while long-term shareholder is a better goal with which to face managers. That said, one would hope that capital markets would gain the wisdom (e.g., value investors) to see past short-term perturbations in earnings and not over react in share pricing behavior.

Your point and interpretation on governmental impacts is a good one and very perceptive as well.

I'll need to listen to these entire videos before commenting next time so as to not take the topic set up as indicative of what might or might not follow.

For now, Mr. Wooldridge is awarded the Ecapitalist medal for toiling away among an army of ardent Ecommunists.

I'm not sure that Koreans are interested in tasty beer. If you have ever visited Korea, and hung out with Koreans, you'd know that the new thing is SoMek. This is a combination of Soju and Mekju(beer). They drop a shot of soju into their beer and drink it up. Dropping soju into a microbrew just does not make sense.

You are absolutely correct about politicians and unions. Unions constitute a virtual mafia of guaranteed votes for typically democrat political candidates. This is arguably why the ruination of a country's competitiveness which is inflicted by unions does not get confronted.

Democrat politicians are willing to see America destroyed in the global economy as long as the politician gets elected.

By "monopoly power," I mean that a large number of shareholders and executives are pooling their capital together to negotiate the price of labor with one worker. They do this through a government-created entity known as a "corporation." The key element of the corporation - limited legal liability - is a government-granted benefit, not a product of the market.
Labor unions grant labor merely the same kind of monopoly pricing power that capital enjoys via the government-granted legal fictions that we call "corporations." Obviously, workers can always look for other companies, ad companies can always look for other workers. The point is that, structuring the law so that capital can easily be pooled together, while making it harder for labor to have a collective voice, means that capital is going to gobble up a share of the company's earnings that is disproportionate to its contribution.
Evidence for this is the fact that the wage/profit ratio is skewed in favor of profits at an all time high.

Amen. I might add that the egalitarian-esque argument that is often used to support unions is in stark contrast to the actual practice of labor unions. In the latter, wide disparities in compensation exist between individuals providing similar labor input (quality, quantity, discipline, etc) based upon whether one individual is a member of a collusive enterprise. Further, those that are not so fortunate are forced to bear the costs of the artifically inflated compensation of those collusive few. This is through direct (increased cost of goods) or indirect (decreased labor competitiveness when captial decisions are made) means.

The idea that unions are more political, or less market-based entities than corporations is utterly asinine. It's a product of the conflation of "pro-business" with "free-market." People who complain about unions, but are silent about the evidence of market distortions caused by pro-management, pro-capital laws show their true motivations. As Dead Baker has pointed out, a large number of economic "conservatives" really are more concerned with defending and reinforcing economic hierarchy than they are with actually making the market as a whole more efficient or productive.

"Politicians need unions and unions need politicians. We all know that when politics are involved in an issue, we lose."

Politicians do not need unions. Politicians can gain money by mercilessly attacking unions (Republicans), or they can gain both corporate and unions contributions by pledging to not destroy organize labor any further, while still adopting pro-business policies that would be considered center-right in a historical context, or compared to other developed countries (Democrats).

So a corporation that makes something generally considered bad for you is going broke because the workers are asking too much from the corporation?

The Corporation is asking to be made more healthy so it can give more of us diabetes!

What if some judge were to find her testosterone and make the corporation produce something healthy or suffer being fined to the tune of personal liability being imposed on all salaried managerial staff and be forced to pay for the medical care of type IIs until they produce a healthy substitute? Disallow the wholesale liquidation!

According to a report from Associated Press:"Although Hostess' sales have been declining in recent years, the company still does about $2.5 billion in business each year. Twinkies alone brought in $68 million so far this year."
So in other words, bleatings from various elitist "You Shouldn't Eat That" nannies aside, there's lots of money in snack cakes. So a more efficient producer with some extra cash in the bank should be able to buy up the company -- less its costly union employment contracts -- and start profitable production.

Twinkies and other general known junk food brands go through the cycles of business, and at the end they always fall. Twinkies have been made originally around shops for years, the creation of them will not stop, but a mass cheap low grade version should and will go out of business.